Value investing is the art of buying stocks that trade at a significant discount to their intrinsic value. I am certainly a value investor in this sense. So, I’d be inclined to think it’s good to buy at a time when a stock market like the FTSE 100 is at a low. My rationale is that cheaper valuations will increase my opportunity to profit from mispricing.
Ironically enough, despite an uncertain economic climate, the index is flying at 7,770. To put the current feat into context, the record level is 7,877. As great as this is for investors, it doesn’t necessarily scream bargain opportunity to me.
It’s not a question of timing
Instinctively I would consider waiting for a market correction to get a cheaper entry point. However, doing that would be like ‘winning the lottery’ according to financial services firm Charles Schwab. After undertaking a study in market timing, the firm concluded the pursuit does more harm than good. Even the sage of Omaha, Warren Buffett, believes trying to time the market is a waste of time and hazardous to investment success.
Taking this wisdom on board, I needn’t be bothered by whether the FTSE 100 is at all-time highs or lows. Rather, investing for the long term is the best way for me to get a positive return. This gives my investment a chance to ride out stock market ups and downs. Of course with the aim, I sell for a profit.
Will the FTSE 100 continue its strong streak?
Reassuringly, I have found that the stock market tends to historically rise. I don’t have a crystal ball. But in 10, 20, 50 years from now, I think the stock market will likely be higher.
Past performance is by no means of indicator of future returns, but if I charted the stock market value since 1950 till now, it’d be an upward sloping curve.
Of course, I’d like the FTSE 100 to continue its winning streak. But if it stagnates, or reverses, it doesn’t really matter. The longer I hold on to a stock, the better chance I have of it performing better.
Finding FTSE 100 value stocks
Despite the FTSE 100 being in heady territory, it needn’t stop my approach of seeking out-of-favour, lowly valued stocks offering potential for capital appreciation (and income) over the long run.
The FTSE 100 being near its all-time high currently is irrelevant to my long-term goals. So, in turn, I will not care. What I will care about is what I can control. This is picking the stocks that I believe are most mispriced relative to their intrinsic value.
So, to answer my initial question, is now the right time for me to invest? Yes. It’s always the time to invest.
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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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